As a myriad of websites centered around social media and social networks have appeared online over the last few years, a change in the way people share information with one another has occurred. Companies, such as Facebook, Google, Amazon, and LivingSocial, have created websites where millions of users can communicate and share content with one another. This communication includes writing emails and reviews, maintaining friendships, and sharing photos, music, news, products and services.
In recent years, companies have started to leverage online social media in order to increase awareness and adoption of their products and services. Many companies encourage sharing behavior between individuals. In addition to offering functionality for users to share content, certain companies offer monetary incentives to their customers to invite friends to join their websites. By doing this they utilize users' social networks to rapidly increase the volume of site users. Indeed, viral sharing of content can increase traffic to their websites, potentially resulting in increased revenue through ads or product sales in a process known as viral marketing. To further exploit the benefits of viral marketing, companies can incentivize users by giving them monetary rewards for adopting a new product or service. The majority of viral marketing strategies approach incentivization by concentrating on identifying a relatively small set of individuals with high network values and giving them a discounted or free product, in the hope that they would influence many others to also adopt this product.
For example, an online movie rental company may give $20 to a user whose friend signs up for their service. In addition, the friend receives the first one-month subscription for free. Similarly, another online marketplace for designer items may provide tiered incentives for inviting friends to join and purchase from their company, by giving a $30 credit to a user when 10 friends have joined, $30 more in credit when 25 friends have joined, free shipping when 50 friends have joined, and $25 to the user when a friend makes his or her first $25 purchase.
In contrast to viral marketing strategies, which rely on identifying influential members, companies have recently started to offer all customers monetary incentives to convince their friends to join an online service or adopt a product, but withhold the reward until the incentive goal (e.g., a friend adopting) is completed. By doing this, they utilize users' social networks to rapidly increase the volume of site users.
Besides priming users with incentives for attracting new users, several sites tie monetary incentives into sharing (or recommending) products with new and existing customers and rewarding the recommenders when the referred customers purchase products from the site. For example, users who share a deal with their friends get credit equal to the price of that deal towards future purchases if at least two of their friends buy the recommended deal. A more conservative, but immediately applicable, post-purchase incentive called Me+3 provides that when a user persuades three (or more) friends to purchase a particular deal, the user is refunded their own purchase of the deal.
Such incentives can have measurable impacts on the behavior of users and can be of benefit to both users and companies. For instance, using the above example, a user with only one recommendation recipient in mind may choose to expand the number of recommendations or shares, with the intent of convincing two additional people to purchase the deal and receiving the deal for free. On the other hand, the company can get additional purchasers through these recommendations, and recoup the cost of the free deal, as well as increase profits and grow their potential pool of buyers for future deals.
While such incentives become increasingly more popular among online retailers, if a deal is not properly structured, the company can stand to lose money, which is undesired. In addition, it is often difficult to determine which incentivization works without actually giving the incentivization to users and monitoring the results. However, this again exposes the provider to less the optimal profits or even a loss. Conventional viral marketing strategies approach this problem by concentrating on identifying a relatively small set of individuals with high network values and incentivizing them to adopt a product, in the hope that they would influence many others to also adopt this product. However, this method doesn't guarantee the highest possible or maximum profits or even success.